Turkey sees long-term partner in China
President Erdogan says his nation, amid crisis with Washington, may be forced to seek out 'new friends'
Turkey’s President Recep Tayyip Erdoğan, his nation’s currency in free fall, on Friday criticized “unilateral actions against Turkey by the United States, our ally of decades.” In an op-ed in The New York Times, he said that if such actions continue, Turkey will be required “to start looking for new friends and allies.”
China is surely one of those potential “new friends,” as evidenced by the fact that economic relations between the two countries, fueled by increasing expectations triggered by the Belt and Road Initiative, have been on a significant rise recently.
In the short term, as the Turkish economy goes through dire straits and the local currency continues its slide, Turkey needs – more than ever – to secure external financial resources. Access to Chinese finance is, under these circumstances, more than welcome for Ankara.
Yet what Turkey expects from China as a “new friend” is more than saving the day for the economy.
A 100-day action plan released by the Turkish government last week, which is hoped to pave the way toward sustainable policy implementation in every sector, mentions China multiple times.
The portion of the 100-day plan that falls under the Ministry of Treasury and Finance explicitly refers to Turkey’s “need for diversifying foreign resources and instruments of finance.” China is singled out as a potential source in this effort.
It states that Turkey will “open up to the Chinese market for external borrowing and obtain loans from China’s Panda market.”
In the run-up to the release of the 100-day plan, the Ministry of Treasure and Finance announced a new credit line secured from China, valued at US$3.6 billion. This credit line is to be used to support the private sector, public institutions and banks – an important first step within the 100-day framework, which is likely to be replicated.
Turkey’s Ministry of Trade recently declared China as one of the four priority markets for Turkish products, with the others being Russia, India and Mexico.
This ministry’s 100-day action plan also includes renewed efforts to improve the use of local currencies in foreign trade, rather than third-country currencies such as the dollar or the euro.
Having two Chinese banks – ICBC and Bank of China – active in Turkey will help to facilitate the use of China’s official currency, the renminbi, in Turkey.
The 100-day action plan for the Ministry of Culture and Tourism also singles out China as a key source of tourists.
The drive to attract a larger share of the Chinese tourism market has long been on the Turks’ wish list.
In 2001, Ankara allowed a defunct Soviet-era aircraft carrier purchased by the Chinese from Ukraine to pass through the Turkish Straits in return for a promise that Beijing would send one million Chinese tourists to Turkey every year. The bargain did not quite work – the promised volume of Chinese tourists did not come, though the renovated aircraft carrier is now serving with the People’s Liberation Navy.
The jump in Chinese tourism was nevertheless significant. In 2017, according to Turkish government data, 247,000 Chinese citizens visited Turkey – only a quarter of the number planned for, but representing a nearly 50% jump from the previous year.
100 days of China
The 100-day action plan of the Turkish government includes steps to be taken to solidify its partnership with China, but the real instrument for extending that relationship into a sustainable long-term partnership is the Belt and Road Initiative.
Within this framework, Turkey has already signed several agreements with China to improve its logistics networks.
Chinese companies are already involved in a number of high-speed railway projects throughout Turkey and they are likely to increase their market share significantly in the near future.
A Chinese company owns 65% of the container port near Istanbul and continues to upgrade the terminals there.
In the meantime, energy cooperation between the two countries is gaining steam, especially in the nuclear energy sector. The two sides have concluded a comprehensive agreement for cooperation in the peaceful use of nuclear energy, from the construction of a nuclear plant in Turkey to the training of nuclear engineers.
For Turkey, China is a valuable source of not only finance, but also infrastructure, technology, and know-how.
For China, Turkey is located strategically at the heart of the Belt and Road project as a connector between Asia and Europe. Increasing its economic presence in Turkey is of vital importance to Beijing because Turkey is well positioned to be a hub in the larger Eastern Mediterranean region, serving the Balkans, Europe, the Middle East and the Caucasus.
In other words, this is all about mutual benefits for Turkey and China – current and expected.
Asia Times columnist David P. Goldman concludes in an August 10 article that Beijing is going to “absorb Turkey into the greater Chinese economy,” leading Ankara to “end up as an economic satrapy of China.”
Goldman’s vision of “containers of Chinese-made parts (arriving) by rail in Anatolia for assembly into finished products to be sold in Europe and the Middle East” is not only realistic, but is already happening.
Chinese-made intermediary products and components are entering the Turkish economic system, reducing producer costs, and providing a competitive advantage for exporters.
Yet his conclusions may be farfetched.
West still best
Turks see China as a “new friend,” a new source of not only capital but also technology and other goods, and the Belt and Road Initiative is certainly causing excitement – both for the government and the private sector.
However, the Turkish economy is too integrated with the West to become China’s satellite. In 2017, according to the Turkish Statistics Institute, Turkey’s exports to China were the equivalent of – in dollar terms – only 19.4% of exports to Germany, or 33.9% of exports to the United States.
The European Union is by far the largest export market for Turkey, and the four million strong Turkish diaspora in Europe is working to maintain and further develop this relationship.
In the field of investments coming into Turkey, there is an even starker picture.
As of April 2018, according to Central Bank of Turkey data, 72.1% of foreign direct investment stock in Turkey originated from Europe, and 7.6% form the United States, while China’s share was a minuscule 1.1%.
These figures are certainly not hinting at what Goldman calls a “Sinification of Turkey,” although it is evident that China’s share in the Turkish market will increase relatively in the near future.
Current political issues aside, what Turkey needs to do in order to restore the health of its economy is to strengthen its global links.
Substituting Europe and the United States as economic partners with China is not an option, given the numbers above.
The wiser option is to diversify the portfolio, to maintain and further develop economic linkages with established partners in the West, while at the same time exploring opportunities with potential partners in the East, such as China.
The political issues that Turkey is having at the moment with Europe and the US are temporary, while the mutual economic interests established over decades will endure.
For Turkey, the strategy must be about making “new friends” while at the same time mending ties with old friends.